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Sherritt International Corporation 2013 Annual Report

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Sherritt International Corporation 2013 Annual Report T T R L REPO L A Sherritt International Corporation ANNU 2013 Sherritt International Corporation 2013 ANNUAL REPORT Sherritt is a world leader in the mining and refining of nickel from lateritic ores with operations in Canada, Cuba and Madagascar. The Corporation is the largest independent energy producer in Cuba, with extensive oil and power operations on the island. Sherritt licenses its proprietary technologies and provides metallurgical services to commercial metals operations worldwide. The Corporation’s common shares are listed on the Toronto Stock Exchange under the symbol “S”. FINANCIAL HIGHLIGHTS ($ millions, except per share amounts, as at December 31) 2013 2012 Revenue $ 448.50 $ 475.3 Adjusted EBITDA(1) 216.7 341.1 Net earnings (loss) from continuing operations (158.5) 12.3 Net earnings (loss) (660.3) 33.7 Basic earnings (loss) per share from continuing operations (0.53) 0.04 Basic earnings (loss) per share (2.23) 0.11 Net working capital(2) 481.8 908.4 Total assets 6,457.80 6,587.8 Weighted average number of shares (millions) Basic 296.7 296.3 Diluted 297.1 296.8 (1) Adjusted EBITDA is a Non-GAAP measure. For additional information, see the Non-GAAP measures section of the MD&A. (2) Net working capital is calculated as total current assets less total current liabilities. REVENUE BY DIVISION(1)(2)(3) ADJUSTED EBITDA BY DIVISION(1)(2) ($ millions) ($ millions, excluding corporate costs) ’09 ’10 ’11 ’12 ’13 ’09 ’10 ’11 ’12 ’13 1,000 500 800 400 600 300 400 200 200 100 0 0 ■ Metals ■ Oil and Gas ■ Power ■ Metals ■ Oil and Gas ■ Power (1) The effective transition date from Canadian GAAP to IFRS was January 1, 2010. As a result, the fiscal year 2009 is stated in accordance with Canadian GAAP. (2) The effective adoption date of IFRS 11 was January 1, 2013, resulting in accounting for the Moa Joint Venture changing from proportionate consolidation to equity accounting effective January 1, 2012. Amounts prior to January 1, 2012 have not been restated. (3) Revenue for 2012–2013 is before adjustment for joint venture and associate revenue. Cover image: Ambatovy plant site, Madagascar SHERRITt’s GLOBAL ASSETS CANADA SPAIN PAKISTAN CUBA REVENUE BY DIVISION(1) (% of total revenue) Metals 55% Oil and Gas 38% MADAGASCAR Power 7% ● Commercial operations developed with Sherritt technologies (1) Excluding items listed as corporate and other. CONTENTS Message to Sherritt shareholders 2 GLOBAL OPERATIONS: Metals overview 4 Oil and Gas overview 10 Power overview 16 Discontinued operations – Coal 19 SUSTAINABILITY: Workplace and ethics 21 Environmental responsibility 22 Stakeholders and community 22 Financial review 24 Corporate governance 161 Board of Directors 162 Shareholder information (inside back cover) Sherritt International Corporation AR 2013 | 1 David Pathe and Harold (Hap) Stephen ceo’s messAGE In 2013, we undertook significant steps to narrow our focus expected at the end of 2015, and is expected to lower costs to businesses where we have differentiating experience and of production by up to one dollar per pound of nickel. We are expertise, and we are continuing our efforts to optimize also looking to continue developing the energy business there performance, extend the life of our assets and reduce costs through the extension of the term of an existing development across our operations. We are advancing our base metals block and the potential addition of four new exploration businesses in Madagascar and Cuba, and are currently looking blocks to capitalize on proximity to the existing infrastructure. to extend the life of our Cuban energy business. In narrowing While 2013 was certainly a challenging year, we have set the our focus, we also determined areas that lie outside of our course that best positions the company for long-term success. core strengths, and at year’s end we announced the sale of We have focused on what we do best, divested operations our Canadian Coal business. outside of our core business, invested selectively where we The Coal transaction is expected to bring net cash proceeds were sure of the benefits and significantly strengthened our of approximately $793 million. These funds will provide us financial position. While the substantial drop in the nickel with the ability to further strengthen our balance sheet by price last year significantly impacted our financial results, we proactively reducing our overall debt levels, maintain strong continue to be a low-cost producer and look to improve on this liquidity and invest where there are clear and tangible benefits. further as Ambatovy comes fully on-line. As a result, Sherritt is well positioned as we look forward to 2014 and beyond. With an annual design capacity of 60,000 tonnes of nickel and 5,600 tonnes of cobalt, our Ambatovy Joint Venture in Thank you to all of our employees, members of the Board Madagascar is the largest finished nickel and finished cobalt and you, our shareholders, for remaining dedicated to operation from lateritic ore in the world. In the fourth quarter Sherritt’s success. of 2013, we logged record average ore throughput as a result of the improved performance of our leach autoclaves. On January 22, 2014, we reached a significant milestone as Ambatovy achieved Commercial Production, and we expect to see continued improvements in production throughout the DAVID V. PATHE coming year. President and Chief Executive Officer Sherritt remains committed to its long and successful Sherritt International Corporation relationship with Cuba. We have begun to mobilize resources for the construction of a 2,000 tonne per day acid plant in our Moa Joint Venture. Initial production from the facility is 2 | Sherritt International Corporation AR 2013 In 2013, we set the course that best positions the company for long-term success. CHAIRMAN’s messAGE The past year certainly brought its share of challenges, but I would like to take this opportunity to extend my sincere the Board and management team took the necessary steps in appreciation to Ian Delaney, the founding Chairman of Sherritt 2013 to leave us well positioned for what lies ahead. As International, and former Lead Director Marc Lalonde, both of evidenced by the recently announced sale of our Canadian whom retired last year from your Board after dedicating nearly Coal business, our plan for the coming year is to refocus our two decades to the company. efforts on what we do best: our base metals and Cuban oil businesses. Within our efforts to refocus the company, we will continue to streamline the business model, concentrating on our core holdings in nickel and growing the business over time through organic expansion and select acquisitions. HAROLD (HAP) STEPHEN We remain steadfast in our dedication to maintaining sufficient Chairman liquidity and a strong balance sheet. These are of paramount Sherritt International Corporation importance and will continue to be a focus of the company in 2014. In line with our commitment to strong governance, we were pleased to welcome new additions to your Board in 2013. This year saw the addition of Adrian Loader and Lisa Pankratz, both of whom add tremendous strength at an international level in the resource sector and capital markets – Adrian from an operations perspective and Lisa from an investors’ perspective. Sherritt International Corporation AR 2013 | 3 Metals Horton spheres, Fort Saskatchewan, Alberta Sherritt is a world leader in designing pressure leach hydrometallurgical processes as well as in operating nickel refining facilities that utilize these processes. Sherritt International Corporation AR 2013 | 5 58,690 tonnes of nickel produced in 2013 (100% basis) Nickel briquettes, Fort Saskatchewan, Alberta METALS ADJUSTED EBITDA AND Sherritt FINISHEDis a world METALleader in PRODUCTION the mining and refining of nickel SPENDING ON CAPITAL and cobalt(tonnes, from 100% lateritic basis) ores, with nearly 60 years of technical ($ millions) and operational expertise. Sherritt Metals operations consist of a 50% interest in the Moa Joint Venture and a 40% interest ’09 ’10 ’11 ’12 ’13 in the Ambatovy’09 Joint’10 Venture.’11 The ’combined12 ’13 nameplate 300 70,000 capacity of the two operations exceeds 100,000 tonnes (100% basis) of finished nickel and finished cobalt annually. 240 56,000 Both operations utilize Sherritt’s commercially proven hydrometallurgical process technologies. Sherritt’s ongoing 180 42process,000 development and metallurgical testing at its facilities provide the ability to improve operating efficiency and add 120 28value,000 to its existing assets. In addition, Sherritt’s technology and expertise have been, and continue to be, successfully 60 14provided,000 to and adopted by numerous other mining companies in more than 40 commercial facilities worldwide. 0 0 Sherritt Metals achieved record production of mixed sulphides, ■ Adjusted EBITDA(1) ■ Spending on Capital(2) ■ Nickel ■ Cobalt finished nickel and finished cobalt as the production ramp-up of the Ambatovy facilities continued to progress in 2013. (1) The effective transition date from Canadian GAAP to IFRS was January 1, 2010. As a result, the fiscal year 2009 is stated in Full-year finished nickel production reached 58,690 tonnes accordance with Canadian GAAP. (25,148 tonnes Ambatovy, 33,542 tonnes Moa, 100% basis) (2) Spending on capital and intangible assets includes accruals and does not include spending on the Ambatovy Joint Venture. and finished cobalt production was 5,402 tonnes (2,083 tonnes Ambatovy, 3,319 tonnes Moa, 100% basis) in 2013. 6 | Sherritt International Corporation AR 2013 Metals Moa Joint Venture, Cuba MOA JOINT VENTURE In 2013, the Moa Joint Venture produced 36,374 tonnes of The Moa Joint Venture is a vertically integrated nickel mining, contained nickel and cobalt in mixed sulphides (100% basis), processing, refining and marketing enterprise between comparable to prior-year production. Finished nickel production subsidiaries of Sherritt and General Nickel Company S.A.
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